Forms of Business & Stakeholders (AQA A Level Business): Flashcards

Unlike a sole trader, a private limited company offers business continuity, as the business does not die with its original owner.

Setting up a private limited company is more expensive and time-consuming because legal advice is often required.

A public limited company (plc) is a company whose shares can be bought and sold by any member of the public on a stock exchange.

The separation of ownership and control is where the directors who run the business are not the same people as the shareholders who own it, which can lead to conflicts of interest.

The board of directors is elected by shareholders at the Annual General Meeting (AGM).

A hostile takeover is when a competitor or investor buys a majority of shares and seizes control without the agreement of existing management.

Any individual or organisation holding more than 50% of a plc's shares has effective control of the business.

False.

Pressure from shareholders creates a focus on short-term performance, which can conflict with longer-term strategic goals.

A share buyback is when a company repurchases its own shares to increase the value of the remaining shares.

The board of directors recommends a dividend payment, which shareholders vote on at the AGM.

A rights issue is when a company offers additional shares to existing shareholders to raise further capital.

As well as bank loans, a plc can borrow by issuing corporate bonds to institutional investors.

True.

Setting up a plc involves fees for legal and accounting advice and flotation costs, such as producing a prospectus.

A plc must complete regular financial reports, maintain accurate accounting records and hold annual general meetings.

Investors buy shares for dividend income, capital growth, voting rights and portfolio diversification.

Spreading investment across shares in different companies and sectors reduces overall investment risk.

The share price is the price at which a single share in a plc can be bought or sold on the stock exchange at any given moment.

True.

Wider economic factors such as rising interest rates, high inflation or falling consumer confidence can reduce share prices across the market.

Higher dividends can attract more buyers, increasing demand for shares and raising the price.

A high price means the firm needs to sell fewer new shares to raise the same cash, so existing owners avoid their control being highly diluted.

A low share price can tempt rival firms or investors to launch a hostile takeover bid.

A weaker share price signals risk, so banks may charge more interest or tighten lending criteria.

Market capitalisation is the total market value of a company.

Market capitalisation = Number of issued shares × Current share price

A potential acquirer would need to buy a very large number of shares, which protects existing shareholders' interests.

Dividends per share is calculated using this formula:

Dividends per share = Total dividends paid ÷ Number of ordinary shares

Dividend yield is the dividend per share expressed as a percentage of the share price.

Dividend yield = (Dividend per share ÷ Share price) × 100

False.

A very high dividend yield may reflect a falling share price rather than a genuinely generous dividend.

A co-operative is a business owned and run by and for its members, based on the principle that working together means more power.

Each member owns one share and has one vote on key decisions, so all members have an equal say regardless of their financial contribution.

In a retail co-operative, a group of independent retailers operate under one brand name, increasing buying power and sharing marketing costs.

A producer co-operative is a group of manufacturers that work together during the production process, often to share expensive capital equipment. They are common in agriculture.

True.

In a worker co-operative, the business is owned equally by its workers. A community co-operative is different, as it is owned by members of a local community.

Co-operatives cannot issue shares on a stock exchange, restricting their ability to raise finance for significant investment or rapid growth.

The democratic process requires member consultation and agreement, which can slow the business's ability to respond quickly to change.

A social enterprise is a business whose primary purpose is creating social or environmental impacts, in addition to generating profits.

A social enterprise aims to make a profit to invest back into the business, expanding the social work it performs.

Social enterprises may qualify for grants and government subsidies that are not available to conventional for-profit businesses.

False.

Because they present themselves as ethical, any gap between their stated mission and their actual behaviour can cause severe reputational damage.

If a social enterprise prioritises its mission over profit, investors may not see a sufficient return.

A stakeholder is any individual or group with an interest in, or who is affected by, the activities of a business.

The main internal stakeholders are owners, managers and employees.

Employees want fair pay, job security, safe working conditions and opportunities for career development.

False.

Managers may prefer lower-risk strategies, while shareholders push for higher returns.

Shareholders typically want regular dividends as a return on their investment and rising share prices.

External stakeholders are individuals and groups outside the business who are affected by its decisions and activities.

Suppliers want prompt payment and long-term, stable contracts that give them financial security.

Creditors want loan repayments and interest paid in full and on time, so they are at financial risk if the business becomes insolvent.

The local community wants businesses to provide employment and minimise negative impacts such as noise, pollution and traffic.

Cutting wages increases profit for shareholders but reduces the income of employees.

True.

Higher prices improve profit margins for shareholders but make products less affordable for customers, so the two groups' interests conflict.

Ethical responsibilities include providing safe products, avoiding misleading advertising and protecting customer data.

Businesses that act ethically tend to build stronger reputations, attract loyal customers and find it easier to recruit and keep talented staff.